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Why Signet Jewelers Ltd. and Zale Corporation Shares Are Shining

By Jeremy Bowman – Feb 19, 2014 at 3:49PM

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Is this meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Signet Jewelers Ltd. (SIG -1.67%) and Zale Corporation (NYSE: ZLC) were sparkling today, jumping as much as 18% and 41%, respectively, after the Kay Jewelers parent acquired Zale.

So what: Zale agreed to be bought for $21 a share or about $690 million, and its shares were trading between $20.86 and $20.96 today, indicating the market has a high degree of certainty about the deal going through. It's normal to see the target's shares spike on a buyout deal, but the acquirer's stock normally doesn't move this much. Signet CEO MIke Barnes said the acquisition "further diversifies our businesses and extends our international footprint, opening the door to greater growth and innovation across the enterprise."

Now what: Signet will keep Zale operating under its own name, and will leave current Zale CEO Theo Killion in charge of that division. Both retailers have been looking up recently, showing off positive same-store sales in its latest report, as the industry has come back from the struggles following the financial crisis. Investors seem to think that bigger is better when it comes to jewelry, and the deal will give Signet greater operating leverage and negotiating power as well as access to new markets.

Considering the upswing in the industry, I wouldn't be surprised to see Signet shares continue to move higher.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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